If a parent company and outside investors purchase shares of a subsidiary in relation to existing stock ownership (ratably),then
A)there will be an adjustment to additional paid-in capital if the stock is sold above book value.
B)there will be no adjustment to additional paid-in capital regardless whether the stock is sold above or below book value.
C)there will be an adjustment to additional paid-in capital if the stock is sold below book value.
D)there will be the elimination of a gain.

Question

Quizplus · Accepted Answer

When shares are purchased ratably by both the parent company and outside investors, there is no change in the ownership percentage of the parent company, so no adjustment to additional paid-in capital is necessary regardless of the stock's sale price relative to book value.

If a Parent Company and Outside Investors Purchase Shares of a Subsidiary